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Associated Capital Group, Inc. Reports Fourth Quarter and Full Year Results

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Associated Capital Group, Inc. reported a decline in assets under management (AUM) and a decrease in revenues for the fourth quarter and full year-ended December 31, 2023. The company completed $4.0 million of donations to charitable organizations in January 2024, bringing the total giving to $38 million since its spin-off in 2015. The Board of Directors authorized the repurchase of up to an additional 350,000 shares. The company has returned $172.4 million to shareholders through share repurchases and exchange offers, and paid dividends of $36.4 million since its spin-off.
Positive
  • Book Value per share increased to $42.11 at year-end 2023 from $40.48 a year ago.
  • Assets under management (AUM) declined to $1.59 billion at December 31, 2023, from $1.84 billion at December 31, 2022.
  • Revenues for the full year-ended 2023 were $12.7 million compared to $15.2 million in 2022, based on lower average AUM and lower performance-based fees in 2023.
  • The company reported a net income of $37.451 million for the full year 2023 compared to a net loss of $48.907 million in 2022.
  • The company has donated approximately $38 million to over 190 501(c)(3) organizations since its spin-off in 2015.
Negative
  • Net income per share was $1.72 in 2023 compared to a net loss per share of $2.22 in 2022.
  • Assets under management ended the year at $1.59 billion, reflecting net outflows of $325 million, offset partially by market appreciation of $68 million and the impact of currency fluctuations in non-US dollar denominated classes of investment funds of $6 million.
  • Full year 2023 net investment and other non-operating income swung from a loss of $49.2 million in 2022 to a $63.8 million gain, primarily due to mark-to-market changes in the company's holdings of its securities portfolio.

The year-end financial results for Associated Capital Group, Inc. (AC) reveal several key metrics that are critical for evaluating the company's performance. A notable point is the increase in book value per share from $40.48 to $42.11, indicating a growth in the company's net assets or a decrease in liabilities. However, this must be contextualized with the decline in Assets Under Management (AUM) from $1.84 billion to $1.59 billion, which may reflect investor sentiment and could impact future management fee revenue.

AC's net income also showed a significant recovery from a loss of $48.9 million in 2022 to a gain of $37.4 million in 2023. This turnaround is largely attributed to the positive non-operating income, which swung from a substantial loss to a gain. The net income per share-diluted has accordingly improved from a loss of $2.22 to a gain of $1.72. The repurchase authorization of an additional 350,000 shares could signal confidence from the Board in the company's valuation and a potential upside for shareholders, although it may also reduce the equity base and increase earnings per share in the short-term.

The decrease in AUM year-over-year suggests a challenging environment for AC's investment strategies, particularly the merger arbitrage strategy. It is important to note that the outflows from the GAMCO Merger Arbitrage UCITS account for a significant portion of the AUM reduction. This could indicate a broader trend of wealth managers, bank platforms and insurance companies reallocating funds away from merger arbitrage, which may be perceived as less favorable under current market conditions.

Additionally, the report highlights a strategic focus on alternative investment management and mentions the plan to pursue acquisitions and alliances. This diversification strategy could mitigate the impact of AUM outflows and contribute to revenue streams. The historical performance of AC's merger arbitrage strategy, which has outperformed 90-day T-Bills, suggests a strong track record, although past performance is not indicative of future results. The recent uptick in M&A activity in Q4 2023, particularly in the US, may provide a more favorable backdrop for AC's merger arbitrage strategy going forward.

The financial results of AC reflect broader economic trends, such as the fluctuating M&A market and varying investor risk appetites. The reported decrease in AUM could be symptomatic of economic uncertainty, potentially leading to risk aversion among institutional clients. The increase in book value per share, on the other hand, suggests a solid balance sheet that could withstand economic headwinds.

The company's tax rate reduction from 24.7% to 19.5% is also notable, as it has positively influenced net income. This reduction could be due to strategic tax planning or the realization of deferred tax benefits, which are important factors for investors to consider when assessing the company's financial health and management effectiveness.

Lastly, the company's charitable contributions, aligned with ESG principles, may enhance its corporate image and appeal to socially conscious investors, potentially impacting investor sentiment and the company's stock performance in a secondary manner.

  • Book Value was $42.11 per share at year-end 2023 vs. $40.48 a year ago
  • Year-end AUM: $1.59 billion at December 31, 2023 vs. $1.84 billion at December 31, 2022
  • $4.0 million of donations completed in January 2024 to shareholder designated 501(c)(3) charitable organizations brought the total giving to $38 million since our spin-off in 2015
  • The Board of Directors authorized the repurchase of up to an additional 350,000 shares

GREENWICH, Conn., Feb. 06, 2024 (GLOBE NEWSWIRE) -- Associated Capital Group, Inc. (“AC” or the “Company”), a diversified financial services company, today reported its financial results for the fourth quarter and full year-ended December 31, 2023.

Financial Highlights – GAAP basis      
($’s in 000’s except AUM and per share data)      
       
  Fourth Quarter  Full Year 
(Unaudited) 2023  2022  2023  2022 
AUM – end of period (in millions) $1,591  $1,842  $1,591  $1,842 
AUM – average (in millions)  1,581   1,811   1,659   1,817 
                 
Revenues  5,636   7,538   12,683   15,228 
Operating loss before management fee (Non-GAAP)  (2,451)  (2,616)  (11,501)  (11,262)
Investment and other non-operating income/(loss), net  26,672   19,550   63,812   (49,203)
Income/(loss) before income taxes  21,850   16,934   46,865   (60,465)
                 
Net income/(loss)  16,342   13,664   37,451   (48,907)
Net income/(loss) per share-diluted $0.76  $0.62  $1.72  $(2.22)
                 
Class A shares outstanding (000’s)  2,587   3,027   2,587   3,027 
Class B “ “  18,951   18,963   18,951   18,963 
Total “ “  21,538   21,990   21,538   21,990 
Book Value per share $42.11  $40.48  $42.11  $40.48 
                 

Giving Back to Society – (Y)our “S” in ESG

AC seeks to be a good corporate citizen by supporting our community through sponsoring local organizations. On August 9, 2023, the Board of Directors approved a $0.20 per share shareholder designated charitable contribution ("SDCC") for registered shareholders. This was an increase from last year’s $0.15 per share contribution. Based on the program created by Warren Buffett at Berkshire Hathaway, our corporate charitable giving is unique in that the recipients of AC's charitable contributions are chosen directly by our shareholders, rather than by our corporate officers. In the first quarter of 2024, we completed the distribution of approximately $4.0 million to various organizations selected by our shareholders for our 2023 program. Since our spin off as a public company, the shareholders of AC have donated approximately $38 million, including the most recent SDCC, to over 190 501(c)(3) organizations that address a broad range of local, national and international concerns.

Fourth Quarter Financial Data

  • Assets under management ended the quarter at $1.59 billion, in line with September 30, 2023 and compared to $1.84 billion at December 31, 2022.

  • At December 31, 2023, book value per share was $42.11 per share versus $41.43 per share at September 30, 2023 and $40.48 per share at December 31, 2022.

Fourth Quarter Results

Fourth quarter revenues were $5.6 million compared to $7.5 million for the fourth quarter of 2022, based on lower average AUM and lower performance-based fees in 2023.

Total operating expenses, excluding management fee, were $2.1 million lower, $8.1 million in the fourth quarter 2023 compared to $10.2 million in the comparable 2022 period, principally due to lower variable performance-based compensation expense in 2023 driven by lower revenues.

Net investment and other non-operating income was $26.7 million for the fourth quarter, an increase of $7.1 million from the $19.6 million recorded in the year ago quarter, reflecting the appreciation of our equity portfolios in this year’s fourth quarter in addition to interest income in the current quarter.

The fourth quarter of 2023 includes a Management fee of $2.4 million versus none in the fourth quarter of 2022 due to losses. Our provision for income taxes was $5.6 million for the quarter compared to $2.9 million in the comparable period of 2022.

Full Year Results

Revenues for the year-ended 2023 were $12.7 million compared to $15.2 million in 2022, based on lower average AUM and lower performance-based fees in 2023.

For 2023, the operating loss before Management fee was $11.5 million compared to $11.3 million in 2022.

The full year 2023 net investment and other non-operating income swung from a loss of $49.2 million in 2022 to a $63.8 million gain, primarily due to mark-to-market changes in our holdings of our securities portfolio.

In 2023, Management fee was $5.4 million. There was no Management fee in 2022 due to pre-tax losses in that period.

Our income tax rate for the year was 19.5% compared to 24.7% for the prior year primarily driven by deferred tax benefits from a foreign investment that reduced the current period’s effective tax rate.

Assets Under Management (AUM)

Assets under management ended the year at $1.59 billion, $251 million less than year-end 2022, reflecting net outflows of $325 million, offset partially by market appreciation of $68 million and the impact of currency fluctuations in non-US dollar denominated classes of investment funds of $6 million. In the merger arbitrage strategy, most of the outflows ($265 million) were tied to GAMCO Merger Arbitrage UCITS (a Luxembourg entity organized as an Undertaking for Collective Investment in Transferrable Securities). These outflows were generally driven by our clients including wealth managers, bank platforms and insurance companies reallocating funds to other asset classes.

AUM since spin-off:

 December 31, 
($ in millions) 2023  2022   2021   2020   2019   2018   2017   2016  2015 
Merger Arbitrage$1,312 $1,588  $1,542  $1,126  $1,525  $1,342  $1,384  $1,076  $869 
Long/Short Value(a) 244  222   195   180   132   118   91   133   145 
Other 35  32   44   45   59   60   66   63   66 
Total AUM$1,591 $1,842  $1,781  $1,351  $1,716  $1,520  $1,541  $1,272  $1,080 

(a) Assets under management represent the assets invested in this strategy that are attributable to AC.

Alternative Investment Management

The alternative investment strategy offerings center around our merger arbitrage strategy which has an absolute return focus of generating returns independent of the broad equity and fixed income markets. We also offer strategies utilizing fundamental, active, event-driven and special situations investments.

Merger Arbitrage

For the fourth quarter 2023, our longest continuously offered fund in the merger arbitrage strategy generated gross returns of 3.19% (2.35% net of fees). For the full year, gross returns were 5.49% (3.56% net of fees), adding to its historical record of positive net returns in 37 of the last 39 years. A summary of the performance is as follows:

           Full Year         
Performance%(a) 4Q '23  4Q '22  2023  2022  2021  2020  2019  5 Year(b)  Since 1985(b)(c) 
Merger Arb                                    
Gross  3.19   4.40   5.49   4.47   10.81   9.45   8.55   7.73   10.08 
Net  2.35   3.45   3.56   2.75   7.78   6.70   5.98   5.33   7.14 

(a) Net performance is net of fees and expenses, unless otherwise noted. Performance shown is for an actual fund in this strategy. The performance of other funds in this strategy may vary. Past performance is no guarantee of future results.

(b) Represents annualized returns through December 31, 2023

(c) Inception Date: February 1985

Merger Arbitrage returns are driven in part by deal activity. In 2023, worldwide M&A totaled $2.9 trillion, a decrease of 17% compared to 2022 activity. However, fourth quarter deal making increased 23% sequentially compared to third quarter 2023, an encouraging sign that deal making may be recovering. The US remained a bright spot for deal activity with deal volume of $1.4 trillion, accounting for 47% of worldwide M&A (compared to 42% in 2022). Energy & Power was the most active sector with deal volume that totaled $502 billion, accounting for 17% of overall value. Industrials, Technology and Healthcare M&A each accounted for 13% of total M&A in 2023. Private Equity acquisitions totaled $566 billion, accounting for 20% of total deal activity.

Since inception in 1985, our longest continuously offered fund in the merger arbitrage strategy has consistently outperformed the return on 90-day T-Bills. The summary historical performance is as follows:

Risk Arbitrage - The Announcement of a Merger is the Beginning of an OpportunityArbitraje de Riesgo - El anuncio de una fusión es el comienzo de una oportunidadTales of ArbitrageTales of Arbitrage

Merger Arbitrage(1)
Percent Return (%)
 
YearGross Return 
Net Return
 90 Day
T-Bills
20235.49 3.56 5.26
20224.47 2.75 1.50
202110.81 7.78 0.05
20209.45 6.70 0.58
20198.55 5.98 2.25
20184.35 2.65 1.86
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FAQ

What was the book value per share at year-end 2023?

The book value per share was $42.11 at year-end 2023.

How much did the company donate to charitable organizations since its spin-off in 2015?

The company has donated approximately $38 million to over 190 501(c)(3) organizations since its spin-off in 2015.

What was the total giving to charitable organizations in January 2024?

$4.0 million of donations were completed in January 2024 to shareholder designated 501(c)(3) charitable organizations.

What was the net income for the full year 2023?

The net income for the full year 2023 was $37.451 million.

How many shares did the Board of Directors authorize the repurchase of on February 6, 2024?

The Board of Directors authorized the repurchase of up to an additional 350,000 shares on February 6, 2024.

Associated Capital Group, Inc.

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